Companies should monitor groups with power to influence environmental decisions. These groups include the wealthy, politically active people who care about the environment, and those in densely populated areas.
What are Stakeholders?
A company’s stakeholders are those who affect or are affected by business activities. Traditionally, companies focused on a narrow set of stakeholders: shareholders, employees, customers, and regulators. Today, companies are interacting with many other groups. “Community stakeholders” include local residents, environmental and development organizations, citizen associations, and non-governmental organizations (NGOs).
Community stakeholders have substantial control over corporate resources and decisions companies make about the environment. New research shows that three groups often drive improvements in firm environmental performance: those who are wealthy, those who care about the environment, and those who live in densely populated areas.
Researchers George Kassinis and Nikos Vafea found that these groups pressure firms for better environmental performance. The outcome can benefit both communities and companies. Companies in certain industries incur large costs related to pollution; these companies can improve financial performance and competitiveness by improving their environmental performance.
Key Stakeholders Drive Environmental Change
Kassinis’ and Vafea’s study finds companies respond to environmental pressures from key stakeholders by reducing toxic emissions. The researchers looked at toxin levels released by 5,033 plants in the United States (based on the EPA’s Toxics Release Inventory database). Then, they looked at the makeup of the nearby community, in terms of wealth, political organization (i.e. membership in environmental groups), and density.
Here’s what they found:
Wealthy communities use power to demand better environmental performance from companies who depend on them for resources.
Politically active groups that care about the environment create pressure for change. For example, involvement of 1.5% of state residents in an environmental organization significantly reduced plant toxic emissions.
Groups in densely populated areas exert stronger pressures because they are more at risk from the negative effects of pollution.
Managers Must Pay Attention
Managers must consider a broader range of stakeholders — in order to understand their expectations and benefit from their involvement. The researchers suggest that managers:
Monitor stakeholder groups to determine how much power they have to control company resources.
Pay attention to groups that tend to have power to influence environmental decisions, such as: the wealthy, politically active groups who care about the environment and groups in densely populated areas.
Prioritize actions by responding to these influential stakeholder groups.
There’s still a lot to learn about these relationships and dynamics. For example, we need to know more about the relationship between emissions and regulatory stakeholders (policymakers). We can also learn more about the financial costs and benefits related to stakeholder pressures, such as cost efficiency through technologies that reduce environmental impacts.
Kassinis, George, & Vafeas, Nikos. (2006). Stakeholder Pressures and Environmental Performance. Academy of Management Journal, 49(1): 145-159.